The most expensive item that most people ever purchase is their home. Â In terms of cost, every other purchase, from your car to your wedding, pales in comparison. Â For first time home buyers, it can be a very exciting time, but also a very stressful time. Â There are many factors to consider before a potential home buyer can even consider looking at homes.Â Â
Â What is your Credit Score?
Knowing your credit score and making the best use of your credit score is an important step in the home buying process. Â If your credit score is poor, you might not qualify for a mortgage at all. Â And if your credit score is good, you may qualify for better interest rates. So, even before you start to look for a mortgage, you should consider improving your credit score. Â This can be done by checking your credit report for errors and correcting them, ensuring your credit to debt ratio is good, and of course, maintaining a good history of bill and debt repayment.
Â What Interest Rates Are Available?
Like any other purchase, it often pays to shop around. Â Even if you have a great relationship with your regular bank, it can be beneficial to contact other lenders in your area and find out what mortgage rates they offer. Though it may not seem like a lot of money, it can add up. Â Based on an initial mortgage of $300,000, a rate which is 0.2% cheaper can save you almost $30 per month in mortgage payments and almost $3000 in interest over a 25-year amortization.Â Â
How Much Money You Can Borrow?
Itâ€™s easy to get caught up in looking at houses or condos and lose sight of good financial management. Â No matter how beautiful the 3000 square foot home is or how much you would love a south facing balcony, it is important to stay within your budget. Most financial experts recommend that your monthly housing expenses do not exceed 30% of your income. Â Depending on your personal situation and how much debt you have, this value may be percentage may be higher or lower. Â To be certain you are looking at homes within your budget, it is best to get pre-approved for a mortgage before looking at homes. Â Once you sign the paperwork, your lender locks you in at that amount and rate for a set amount of time, giving you plenty of time to look for your new home.
By carefully considering your finances before looking at homes, you can avoid disappointment and heartache later on. Â Things like your credit score and your interest rate are not nearly as interesting as a potential new patio or extra bedroom. Â But in the long run, youâ€™ll save money and have more peace of mind.